Mandiri Sekuritas BUMI: Taunting the doubters

Taunting the doubters

With 19% IRR on US$1.9bn debt, the impacts on Bumi’s bottom-line is very easy to understand as the loan replaced was just US$1.7bn with an average interest of 8% (1H09 annualized). However the reason behind the deal was not as clear as the detrimental financial impact above. This is where the optimists and pessimists draw the line. We kept our BUMI target of Rp4,000/share even though our DCF resulted in Rp2,900 target price (TP), as this TP assumed no acquisitions and no expansion, something that we expect to be realized in the near future.

Detrimental impact in the initial years. The US$1.9bn deal has IRR 19% plain and simple, accrual, and no prepayment below 2 years. The impacts?: 11% and 52% decline in FY09F and FY10F earnings, respectively from our previous estimates. The other impact is our WACC increase from 9.3% to 10.1%, reducing our DCF valuation to Rp 2,892, other assumptio! ns remain the same.

Why do they do the things they did? (1) To fulfill urgent liquidity requirement from the Bakrie Group; or (2) previous lender gave up. Reason 1 was the most reasonable, while reason 2 although probable but unlikely. But if reason 1 is true, why the amount is humongous, while market rumors on Bakrie liquidity requirement was only around Rp6-8tn (US$0.6-0.8bn).

I am on the optimistic side, but it really is a bet. Why : (1) I am a believer of dollar de-basement, (2) rising commodity price in US$ terms, (3) we do not think the main aim of the deal is to obtain fund to prepay the Bakrie Group’s debt because it is not its custom to make early debt retirement, and (4) there must be some urgent attractive acquisitions ahead. The downside: one or some of the above did not turn out to be correct.

Maintain Rp4,000/share target price. In our DCF calculation, volume sales from Bumi peaked at 79mn tons in 2013 29% less than what Bumi is expecting by 2012, and benchmark price of coal of US$75/ton. We added back US$300mn short term investment in Recapital on improving outlook of its recovery, and excluded all other assets.

CIMB Coal Mining Lower royalty for low - cal coal

Lower royalty for low-cal coal?
Maintain Overweight on the sector. A local newspaper reported yesterday that the Indonesian government might reduce royalty payments for lower-calorie coal production (less than 5,000 kcal/kg ADB), especially from the big producers(CCoW holders), quoting Mr Bambang Setiawan who is a Director General at the Ministry of Energy and Mineral Resources. These CCoW holders now pay 13.5% of their annual sales as royalties regardless of the quality of coal sold. This is higher than the 3% royalty paid by producers of low-quality coal with licences issued by local governments (KP or IUP), and even higher than the 7% royalty for high-quality coal by these KP or IUP licensees.

This royalty incentive, if implemented, should have little impact on coal producers in the next 1-2 years. However, such a measure would be positive on their long-term outlook, especially when DMO is in effect and the demand for low cal-coal domestically and in Asia grows. We are maintaining our forecasts and target prices for coal producers under our coverage. Adaro remains our top pick in the sector. New royalty. The new royalty would likely be divided into three tranches, according to the newspaper: 1) 9% for 4,600-5,000 kcal/kg ADB; 2) 7.5% for below 4,600 kcal/kg ADB; and 3) 8.5% for underground mining.

The current royalty structure leaves the larger producers with little ability to compete with miners with local (KP or IUP) licences in supplying low-calorie coal to domestic utilities, prompting the producers to focus only on high-quality coal production and exports.

Little impact in the near term. We emphasise that there would only be little impact from this incentive in the near term, if implemented, especially as there is very little production of low-cal coal in Indonesia currently. The positive impact would only be felt in the future, when there are more low-cal coal deliveries. Earnings accretion would be subject to future demand and producers’ output, as currently the big producers as well as consensus remain conservative in their projections for low-cal coal production.

Maintain Overweight on the sector. This royalty incentive, if implemented, should have little impact on coal producers in the next 1-2 years. However, the impact could be positive in the long term, especially when DMO is in effect and the demand for low cal-coal domestically and in Asia grows. We are maintaining our forecasts and target prices for coal producers under our coverage. Adaro remains our top pick in the sector.

[BRIGHT INFO] "A Cup of Tea"

GD2U and HAPPY RAMADHAN for BETTER LIFE

Investors slowed their hectic buying of US stocks Monday, leaving the major indexes little changed after a four-day advance. Stocks pulled back from their early highs as financial stocks, which had been surging, retreated. The DJIA rose 3.32, or less than 0.1%, to 9,509.28, after earlier rising as much as 82 points.

Most Southeast Asian stock indexes hovered around a one-week high on Monday, buoyed by optimism about economic recovery. The rally in Southeast Asian shares to a surge in U.S. stocks on Friday. Hong Kong shares climbed 1.67% on Monday, tracking strength on mainland and overseas stocks markets. China's main stock index ended up 1.1% on Monday in rangebound trade, with strong earnings by index heavyweight Sinopec Corp. Both markets are seen having limited upsides as investors turned cautious after the rebound.

Crude oil gained 0.6% to a 10-month high of $74.34 a barrel. Nickel jumped 3.6% to $20,000 a ton and tin climbed 0.7% to $14,400 a ton. Crude palm oil futures rose 1.3% yesterday, but came off a one-week high hit earlier in the day following market talk of a drop in palm oil exports for the August 1-25 period.

Coal prices have jumped to their highest in a year as a drop in Chinese domestic output forces the country to import. China’s net imports of coking coal rose to 12.6m tones between January and June, up from 1.1m in the same period last year. Spot prices for coking coal surged last week to $160 a tones, up almost 40% in the last three months and the highest in 12 months. The spot price is now 24% above the price at which annual contracts were settled for 2009-10.

European industrial orders increased more than economists forecast in June, according to a report today from the European Union’s statistics office in Luxembourg. Nickel Scrap Tightness. The nickel market will be in a 29,000-ton deficit next year versus a 28,000-ton surplus this year, Bank of America Securities- Merrill Lynch. The tightness in the scrap market through to 2010 would force stainless steel mills to use more refined nickel and ferronickel.

Our market still had positive momentum from fundamental indicator. The market has taken into its head we are going to see a recovery in the fourth quarter. I think in the short term there's still quite a bit of upside but with tightening liquidity we might see some correction.

My top pick was still on coal, base metal and Telecommunication for mid-term investment. Continue to Buy on Weakness at ANTM, INCO, TINS, BUMI, PTBA, ADRO, TLKM and ISAT. For second liner are ENRG, TBLA, DGIK, BKSL, RALS and SULI.

“STREAMLINE” ---

[Personal Opinion ]
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DISCLAIMER: This report is issued by [BRIGHT INFO]. Although the contents of this document may represent the opinion of [BRIGHT INFO]. We cannot guarantee its accuracy and completeness.

Financial Times Coal price surges on Chinese demand

By Javier Blas in London

Published: August 23 2009 19:06 | Last updated: August 23 2009 19:06

Coal prices have jumped to their highest in a year as a drop in Chinese domestic output forces the country to import.

The shift has particularly benefited the price of coking coal, used for steelmaking and much scarcer than thermal coal, which fires power plants.

Christopher LaFemina, mining analyst at Barclays Capital, said “Coking coal is one of our preferred commodities”, adding that the seaborne coal market was “turning the corner”.

The strength of Chinese imports has surprised coal miners Xstrata, BHP Billiton, Rio Tinto and Anglo American that were braced for a protracted period of low prices because of low demand in Japan, South Korea and Taiwan, the traditional buyers.

Vivek Tulpulé, Rio Tinto’s chief economist, said that the rise of Chinese seaborne coal demand was triggered by the closure of many small mines early this year.

Sharply falling coal prices in late 2008 and early 2009 put several high-cost mines in China out of business. This coincided with a crackdown by Beijing on illegal and dangerous mines. Domestic supplies were cut, and import demand rose.

China’s net imports of thermal coal were 24m tonnes in the first half of the year, against exports of 4m in the same period of 2008.

Net imports of coking coal rose to 12.6m tonnes between January and June, up from 1.1m in the same period last year. As prices have risen, domestic producers are bringing mines back into production, putting the sustainability of high coal imports into question.

The tightness of the market was illustrated in August when Consol Energy, a US-based miner, shipped the first cargo of US coking coal into China in five years. Usually, Australia supplies the Chinese market because of its proximity.

Spot prices for coking coal surged last week to $160 a tonne, up almost 40 per cent in the last three months and the highest in 12 months.

The spot price is now 24 per cent above the price at which annual contracts were settled for 2009-10.

Bank of America-Merrill Lynch recently raised its forecast for coking coal annual contract prices to $140 a tonne next year, up from $129 this year. Thermal coal spot prices have risen less, trading at $75 a tonne, up 25 per cent from March’s low of $60 a tonne, according to McClosley, the coal data provider. Thermal coal is still well below last year’s record of more than $180 a tonne.

[BRIGHT INFO] "A Cup of Tea"

GD2U and HAPPY RAMADHAN for BETTER LIFE

DJIA shot up 155 points on Friday, closing above 9,500 for the first time since Nov. 4, 2008, and all the big indexes finished with gains of more than 1.5%. European stocks advanced after services in Germany and manufacturing in France unexpectedly rose. Purchases of existing homes climbed 7.2%, the National Association of Realtors said Friday in Washington.

China shares ended a roller coaster week on a high note, advancing 1.7% in rising volume on Friday, led by banks after strong earnings reports, although it posted its third weekly loss in a row.

Hong Kong shares dropped 0.6% on Friday as fears resurfaced about a likely clampdown on lending. Reports that China's banking regulator may tighten capital rules by excluding subordinated bonds banks sell to other lenders from their capital base triggered selling in Chinese bank stocks in Hong Kong. That is old news and the market already responded to this once. But investor confidence has been so shaken by the sell-off earlier this week that every time this news surfaces its an excuse to sell.

Crude oil rose to a 10-month high in New York on Friday, following equities higher on speculation that the global recession is easing. Crude oil for October delivery increased 98 cents to $73.89 a barrel. Newcastle Coal closed at $72 down 3%.

Nickel, which surged 17% the past month, may advance further as price momentum and inflation expectations lure fund managers even as stockpiles of the metal approach a 14-year high. The CHART on the London Metal Exchange shows that the lower panel tracks inventories in metric tons. The price jumped to its highest level for a year on Aug. 13 and open interest was a record 147,117 contracts on Aug. 14, according to LME data. The price momentum behind metals is so strong that the market is attracting external players.

Malaysian cpo rose 1.9% on Friday, recovering from a near three-week low earlier in the session on talk of lower production in a key growing region.

Our market still had high volatility with tight liquidity. As our fundamental economic still strong and regional data getting better, I think we do not worry. We still put JCI target at range 2375-2450 for year-end 2009. And we still believe that it will achieve.

For today I think our market will move and stay on territory positive. Our focus is still on sector mining such as a base metal and coal, energy, telecommunication, bank.

Top Pick for today is TLKM, ISAT, PTBA, BUMI, ADRO, BBNI, BDMN, INDF, UNTR, BNBR, ANTM, TINS and INCO. We put SoS for BBRI, BBCA, BMRI.

Note: BUMI through the subsidiary business Calipso Investment Pte Ltd are bidding up to 15.8% shares in Herald Resources Ltd price AUD 0.7 per share which is 75% premium from closing Friday. Currently, Calipso has an 84.2% share Herald.

“EXPENSIVE? NOT REALLY”